ATS Corp T.ATS

RBC 2

[retiredcf]

Their upside scenario target is $79.00. GLTA

August 9, 2023

ATS Corporation Outperform

Results and commentary underscore favorable outlook

Our view: We maintain our positive view on ATS following FQ1 results that were ahead of RBC/consensus expectations. Overall, we believe the demand backdrop remains supportive, and ATS remains well positioned to deliver against Street expectations given its sizeable backlog, good execution, and M&A optionality. Reiterating $69 PT and Outperform rating.

Key points:

TSX: ATS; CAD 59.66

Price Target CAD 69.00

Thoughts exiting FQ1 – ATS reported FQ1 results that came in ahead of RBC/Street forecasts. Of note, ATS' Backlog conversion came in at 37% (vs. ATS' prior guidance of 32–35%), translating into revenue of $753.6MM (+23.4% YoY, +15.4% organically) vs. RBC/consensus of $724.0MM/ $722.3MM. Overall, we view ATS’ quarter favorably as demand remained healthy despite the uncertain macro backdrop (mgmt noted pricing/lead times are improving, albeit there are still headwinds). Although Bookings were -6.3% YoY in the quarter, the decline was mainly driven by elevated Bookings in the prior year period in the Transportation end-market (recall that ATS recognized EV Bookings of US$578MM in F2023 as part of a larger enterprise program) and the lumpier nature of orders in this space (as evidenced by ATS' larger EV wins). Interestingly, ATS is currently engaged in various pilot projects with EV customers, and in our view, these programs could potentially materialize into additional opportunities going forward. On the broader concerns about supply chain headwinds impacting the EV/ automation space, mgmt noted that their EV projects remain on time/ budget. Overall, we believe ATS remains well positioned for continued growth in F2024 as it delivers on its healthy ~$2.0B Backlog.

U.S. IPO improves balance sheet and provides flexibility for M&A  – Following ATS' recent U.S. IPO (which raised ~US$283MM of gross 2025 766.6E proceeds; see our note here for more information), the company's leverage exiting FQ1 was ~2.0x (-0.7x QoQ; -0.8x YoY) and at the low end of ATS’s target range of 2–3x (on the earnings call, management noted that they are open to exceeding this target range in the short term if an attractive opportunity were to present itself). Overall, we believe the company's improved leverage profile positions it well for additional M&A going forward (ATS has already made 2 small acquisitions fiscal YTD: Yazzoom, a provider of AI/ML tools for industrial production, and Odyssey, a provider of digitalization solutions within Life Sciences).

FQ1 results ahead of RBC/consensus; FQ2 revenue guide ahead of consensus at the mid-point – ATS reported FQ1 revenue of $753.6MM (+23.4% YoY, +15.4% organically) vs. RBC/consensus of $724.0MM/ $722.3MM, while Adjusted EBITDA of $119.2MM (+28.9% YoY) was also ahead of RBC/consensus forecasts of $114.8MM/$114.1MM. Adjusted EPS was $0.68 vs. RBC/consensus of $0.66/$0.65. Looking ahead, ATS expects Backlog conversion of 34%-37% in FQ2, which implies revenue of ~ $688MM-$749MM (vs. consensus of $706MM coming into FQ1 reporting)